Have high street retailers reasserted their dominance over online rivals?

Few sectors in Britain were as severely affected by coronavirus-related curbs as traditional high-street fashion retailers.

Remote working, restrictions on socialising and the on-off closure of non-essential shops dramatically reduced consumers’ willingness to buy new clothes, especially suits and dresses.

And while total fashion sales sank, online retailers soon hoovered up what remained of demand – and achieved record profits in the process.  

But 2023 has seen a reversal of fortunes, with the top high street players restoring their pre-eminence over struggling online rivals.

Turnaround: Since Covid vaccine rollouts allowed countries to reopen, there has been a reversal of circumstances and high street fashion brands have restored their pre-eminence

The pandemic peak of online fashion 

Total fashion retail sales in the UK plunged by a record 25 per cent in 2020, according to Office for National Statistics data. 

But the downturn masked a surge in online apparel orders achieved by a few select UK lockdown winners, most notably fast fashion sellers Asos and Boohoo Group.

Both firms capitalised on being able to function regardless of lockdown restrictions, as well as soaring demand for loungewear and exercise clothes.

Boohoo, the owner of Dorothy Perkins and PrettyLittleThing, saw annual turnover double between the 2019 and 2021 financial years, while Asos’ domestic revenues climbed by just over £600million during the period.

In contrast, Primark, which resolutely refused to sell online until it launched a click-and-collect service in November last year, lost billions from having to shut stores.

Brands with some, but limited, e-commerce presence also suffered.

New Look and River Island were not just impacted by shops shutting; they were also victims of the concentration of their outlets in city and town centres, which have taken longer to recover from pandemic regulations.

Such were the diverging contrasts that one report in 2021 from Retail Economics and Eversheds Sutherland predicted online apparel sales would overtake in-store shopping three years earlier than expected.

Optimism: Next recently upgraded its profit forecast for the third time in four months

Bricks-and-mortar bounce-back 

But since Covid vaccine rollouts allowed countries to reopen, there has been a reversal, with the top high street players restoring their pre-eminence.

In recent weeks, Primark owner Associated British Foods said it expected to post a record £9billion in annual revenue; Next upgraded its profit forecast for the third time in four months, and Marks & Spencer has re-entered the FTSE 100 Index.

How did this happen? Certainly, the reopening of shops has helped the high street enormously. Price hikes have also helped offset inflationary pressures.

But, just as importantly, these retailers have learned to build an effective hybrid operation.

As Danni Hewson, the head of financial analysis at AJ Bell, explained: ‘Smart stores got smarter.

‘Businesses like Next understood their consumer wanted the convenience of online with all the perks of physical stores. They wanted to look and touch, to drop off unwanted parcels free of charge and to enjoy the experience that only browsing rows of racks can provide.

‘Especially when budgets are so very thin and clothing purchases become more considered.’

Applying this strategy has paid off handsomely for investors; in the past 12 months, both Next and ABF shares have grown by at least 40 per cent, while M&S shares have climbed by around 114 per cent.

The opposite is true for digital-only retailers Boohoo and Asos, whose shares have lost more than 90 per cent of their value since mid-2021 as the e-commerce boom collapsed.

Popular: Shein has grown to be one of the ten largest UK fashion firms by market share

Although their sales remain far above pre-pandemic levels, they are struggling to reduce excess stock as customers return more items due to cost-of-living pressures.

And, in unity with brick-and-mortar counterparts, they are contending with rising freight, energy and labour costs, putting further strain on profit margins.

The hybrid model  

But physical shops still face significant challenges in retaining and attracting customers, especially against much cheaper competitors.

Despite heightened environmental concerns, fast fashion is becoming more, not less, popular across the world.

The UK market is forecast to grow $1.4billion by 2027. Globally, it is set to rise from $106.4billion last year to $185billion, according to the Business Research Company. 

Analysts tip Chinese brands Shein and Temu to be major beneficiaries, supported by an army of TikTok influencers modelling countless new designs for their Gen Z audience.

The former has grown to be one of the ten largest UK fashion firms by market share, while the latter is Britain’s number one downloaded shopping app.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said the two companies are not only ‘unhampered’ by steep rents and business rates but are loved by cash-strapped consumers.

‘Shoppers with scruples and steady disposable incomes may be able to resist their cheap charms, but people desperate to find bargains, particularly at Christmas, will find it harder,’ she writes.

If inflation remains elevated for a significant period, the battle between the mid-market, fast fashion and online sectors will only become more heated. 

Luxury labels will have greater immunity from added cost pressures, yet they face their own weighty problems.

Bosses from the likes of Burberry and Mulberry have blamed the abolition of VAT-free shopping in the UK two years ago for driving tourists – a key customer base – to European cities such as Milan and Paris.

A failure to reverse the ‘tourist tax’, imposed by Rishi Sunak when he was Chancellor of the Exchequer, will continue to cost these groups millions in lost orders.

Recovery: Marks & Spencer’s turnaround since launching the ‘Never The Same Again’ strategy three years ago has been nothing short of tremendous

Never the Same Again 

British brands could further suffer this year if they continue to rely too heavily on China, given the country’s subdued economic growth and increasingly hostile relations with the West. So Britain’s top fashion names will be keen to diversify international exposure. 

JD Sports has seen success on this front in recent years, snapping up brands from Europe to the US, landing its first-ever franchise deal in the Middle East, and forging a tie-up with Nike.

It comes at a time of surging demand for sports apparel, largely driven by young people, whom chief executive Regis Schultz has said are benefiting from low unemployment and want to ‘show off’ while they go out more often.

However, Streeter points out it’s ‘not just teenage pestering that keeps revenues rolling in, as wearing the latest sneakers and trending athleisurewear now appears to be a priority for all ages’.

As a result, the Bury-based group expects to score £1billion in annual profits this year, making it the fourth British retailer to surpass such a milestone.

One of the other three is M&S, whose turnaround since launching the ‘Never The Same Again’ strategy three years ago has wowed analysts.

Having alienated much of its core base in the previous decade through sacrificing quality in favour of discounting, the company decided to overhaul its fashion department.

Clothing ranges have improved on quality and style while retaining affordability.

And, instead of focusing solely on own-label ranges, including Autograph and Per Una, the group now sells other well-known brands, such as Skechers, Ted Baker and Sosandar.

The middle-age Middle England favourite is also boosting its appeal among younger audiences with a ‘live shopping’ service and collaborations with brands like Ghost.

These factors have paid off well for the company, which reported a £475.7million profit last year and has returned to the blue-chip index after a four-year absence.

Next’s variation of the hybrid model has seen the high street stalwart hoover up and partner with well-known but struggling brands to revamp its online Total distribution platform. 

Among the tie-ups and takeovers are familiar consumer names like Cath Kidston, Gap, Victoria’s Secret, Reiss, Joules, JoJo Mama, Bebe and Made.com.

But will the high street giant maintain their new-found momentum? 

As Danni Hewson warns: ‘Trends change, and what’s in fashion now can go out of fashion before you’ve finished eating your lunch.

‘Fashion may be fickle,’ she adds, ‘but it’s also lucrative if you get it right.’